In our valuation process, we like to obtain both new patient growth as well as practice attrition data. It gives a comprehensive picture on whether or not the business is growing or shrinking. It also provides transparency for a lender’s assessment. In practices where net growth is evident, this approach supports the seller in attaining maximum value for a business of going concern – meaning the business’ continued operation as a profit generating machine is likely and risk reduction considerations are in place to support loan repayment.
Since numbers, trends and analysis are dopamine generating for me, I decided to pull 8 recent valuations we’ve completed and review the data on the number of new patients (growth), the number of lost patients (attrition), and the net difference between the two (net patient growth).
This was the the approach:
We defined an active patient in this analysis by a patient seen for treatment who was billed in the past 24 months. A “new patient” could be either a true new patient, never seen at the practice before or a patient who returned for treatment but had not attended the practice in the past two years (“a reactivated patient”). A “lost” patient that met our criteria for attrition was a patient that had not been seen for treatment at the practice for 24 months or greater.
In grabbing 8 general practice valuations where we performed a comprehensive analysis of patients in, patients out, and patients seen here’s what we found:
As a proportion of total patients, an average of 16% were lost to follow up. Put another way, the average of the practices reviewed saw a loss of 16% of their 24-month active patient count in ONE year. This range was 7% (strong retention) to 26%. Higher proportions represented practices where speciality services were offered in house in most cases.
As a proportion of total patients, an average of 23% of patients were new patients. The range was 15% to 28% of total active patient growth in 12 months.
The average proportion of NET GROWTH (new patients minus attrition) as reflected by top line active patient count was 7%.
In dentistry, the “client acquisition cost” of acquiring new patients is obscenely high. The word “dentistry” and “dental” is an expensive one in the search engine optimization world.
With this consideration, I encourage you to put patient retention as a priority that is equal to or greater than your marketing efforts (and budget). If we include attrition in our client acquisition cost, the investment we make acquiring a new patient is ⅔ more expensive than we thought. Let’s plug the hole in the boat before we spend more money on it.
